Is It Better to Pay Off One Credit Card or Multiple? A Deep Dive into the Pros and Cons

Having balances across multiple credit cards can feel overwhelming You may wonder if it’s smarter to put all your extra funds toward one card or distribute payments across several. There’s no one-size-fits-all approach, so let’s explore the pros and cons of each tactic.

Focusing on One Card First

Paying off a single credit card entirely can be tempting. Who wouldn’t want to completely zero out one account ASAP? Here are some potential benefits of this strategy

1. Simplifies repayment

When you’ve only got one card left, it’s easier to keep track of a single payment instead of juggling multiple dates and amounts for different cards. Once the first card is gone, roll its payment over to the next card and keep going until you’re debt-free.

2. Frees up credit

Eliminating one account frees up that credit line for future use (in case of emergencies). This can also lower your overall credit utilization ratio since you’ve reduced your total balances.

3. Motivation boost

There’s something exciting about completely paying off a credit card. Watching that $0 balance gives your momentum a shot in the arm to keep attacking the remaining debt.

4. Saves on interest

If the card you pay off has the highest APR of all your debts focusing on it first minimizes interest fees. Say your highest rate is 20% and your other cards are 15% – paying the 20% card in full as fast as possible reduces costly interest charges.

5. Improves credit score

Deleting one account from your credit report can increase your credit score, especially if it was your oldest or largest credit line. Just don’t close the account after paying it off, or you’ll lose the credit history benefit.

Distributing Payments Across Multiple Cards

On the other hand, splitting your extra money across all your cards has advantages too:

1. Prevents maxing out cards

If you’ve got a card that’s nearly “maxed out” (with a very high balance compared to its limit), paying it down helps avoid maxing it out. This prevents damage to your credit score.

2. Manages high interest rates

Making payments on all cards, not just the highest APR ones, ensures you chip away at every ballooning interest charge instead of letting some grow.

3. Improves credit utilization

Having high balances on several cards hurts your credit score more than one maxed out card. Paying down all accounts gradually gets every balance and your overall utilization to a healthier place.

4. Flexibility if plans change

Spreading payments across all cards gives flexibility if life throws a curveball. For example, if your AC unexpectedly breaks, you may need to pause debt repayment and having reserve credit on multiple cards gives options.

5. Additional motivation

Watching several balances decrease, not just one, can provide more frequent doses of motivation. And if you’re juggling bills across many categories (groceries, gas, travel, etc.) on different cards, reducing debt in each category feels organized.

Questions to Ask Yourself

There’s no universal right or wrong approach – it depends on your specific situation. Here are some questions to ask yourself when deciding whether to pay off one card or multiple:

• What are my goals? Do you want to boost your credit score, reduce interest costs, or simply feel a sense of accomplishment? Your strategy should align with the outcomes you want.

• Which card has the highest APR? The debt avalanche method suggests focusing on the account with the largest interest rate first.

• Which card has the lowest balance? With the debt snowball method, you pay the smallest balance first for motivation.

• Which card is closest to its limit? Paying down accounts near the max first can help credit utilization.

• How old is each account? Avoid closing your oldest card since credit history matters.

• How much total debt do I have? If you owe $50,000 across 10 cards, picking one to pay off won’t make a huge utilization dent.

• Can I actually pay off a card fast? Don’t pick an account with a huge balance that’ll take years to zero out. Go for a smaller win first.

• What unexpected expenses might arise? It may be wiser to keep some reserve credit available on multiple cards rather than maxing out payment on one.

Other Strategies to Consider

Beyond focusing on one card or dividing payments, here are a few other approaches if you have multiple credit cards:

• Balance transfer: Transferring high-interest balances to a 0% promotional card can temporarily halt interest fees. But watch for transfer fees.

• Debt consolidation loan: A personal loan with a lower rate than your cards lets you combine many payments into one. But this puts new debt on your credit report.

• Credit counseling: Non-profit credit counseling services can negotiate reduced interest rates on your cards to make repayment easier.

• Debt settlement: Debt settlement companies negotiate with your creditors to settle accounts for less than you owe. But this damages credit and has fees.

• Debt management plan: A DMP arranged by a credit counselor gets creditors to agree to lowered rates and a repayment plan. But expect enrollment fees.

• Bankruptcy: Declaring Chapter 7 or 13 bankruptcy eliminates credit card debts entirely but devastates your credit for years.

The Importance of Paying Minimums on All Cards

Regardless of which card you target or if you split payments, keep making at least the minimum monthly payment on every credit card. Not doing so results in late fees and penalties that only make repayment harder. Auto-pay can help ensure you don’t miss minimum payments.

Start with a Debt Repayment Plan

Before deciding where to direct extra payments, tally up all your credit card balances and interest rates. Calculate the monthly payment amount you can afford for debt repayment. Use this information to create a detailed debt repayment plan, being realistic about your timeline and reevaluating as you pay down balances.

Sticking to a plan helps you pay off credit card debt systematically, instead of randomly making payments. And having an end date in sight will keep you motivated until you’re finally debt-free!

The Bottom Line

When you have multiple credit cards with balances, there’s no definitive rule on how best to distribute extra payments. Paying off one account fully can simplify things and boost your credit score. But spreading payments across all cards has advantages like managing high utilization.

Look at the interest rates, credit limits, balances, and your overall repayment goals on each card. Weigh the pros and cons, ask yourself key questions, and stay organized with a plan. Most importantly, make at least the minimum payments on all cards each month. With some savvy strategizing, you can effectively pay off credit card debt across multiple accounts.

The 2/3/4 rule is a credit card application restriction specifically used by Bank of America. It limits the number of new credit cards you can be approved for within certain timeframes.